Despite the dollar slipping against a basket of currencies on Wednesday, commodity-linked currencies like the Canadian dollar were supported by the rally in oil prices this week.
Oil prices rose on Tuesday due to news of the explosion on a Libyan crude pipeline. Another support came from the supply cuts voluntarily led by OPEC.
The events help support the currencies of countries who export commodities.
The Canadian dollar reached a high of C$1.2678 at one point, which was its highest since December 06.
Likewise, the Australian dollar increased 0.2 percent to $0.7746, its highest level in two months.
The U.S. dollar slipped 0.1 percent against a basket of six major currencies to 93.188.
There was not much movement on the major currencies. Euro inched up 0.2 percent to $1.1876. The dollar was steady against the yen at 11.19 yen.
Bitcoin climbed 3.2 percent on the Luxembourg-based Bitstamp exchange, reaching around $16,270. So far this week, Bitcoin has risen 14 percent, regaining footing after a drop of 25 percent the week before.
BOJ Monetary Policy
Forex strategist Peter Chia pointed out the possibility of the dollar being weighed down on monetary policy convergence next year. He cited the central banks, other than the U.S. Federal Reserve, having either started to move away from monetary stimulus or to raise interest rate as a reason.
Due to this, Chia said, Japanese policymakers might then begin to drop more hints regarding the eventual tightening of the Bank of Japan’s monetary policy. He noted the likelihood of the dollar falling to 108 yen by the end of March.
“I think that policymakers in Japan want to prepare markets way ahead for some policy change… The signaling process could be at a higher intensity next year,” he said. Chia also stated that the actual BOJ policy tightening might only happen in 2019.
BOJ Governor Haruhiko Kuroda’s speech in November motivated speculations that BOJ can move away from crisis-mode stimulus earlier than predicted.
This was when Kuroda mentioned the “reversal rate” concept. It’s a level wherein low-interest rates can end up with harmful side-effects overshadowing the benefits.
However, Kuroda said last week that economic improvements alone will not be enough to trigger a withdrawal of stimulus. His statement came after the BOJ kept the policy steady. This further supported that the BOJ was in no rush to leave its ultra-loose monetary policy.
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